雅思阅读材料：Banks Exposures

　　Unlike in 2008, banks' exposures are there for all to see

　　THERE are worrying similarities between 2008 and today as indicators point to another interbank lending freeze. But there also some important differences: credit bubbles are deflated, housing prices adjusted, private debt reduced and, last but not least, banks have started to deleverage their balance sheets, mainly by strengthening their capital and reserves; even in Europe, banks have increased their capital by more than 20% on average since Lehman.

　　However, the decisive difference is with regard to the distribution and probability of expected losses, resulting in 2008 mainly from housing loans but today from government debt.

　　In 2008, losses resulting from the subprime and securitisation debacle were a done deal; there was (and still is) no quick remedy to revive the housing market. But what was unclear was the exposure of each bank to these toxic assets, especially as exposure came not in plain vanilla but in wrapped and structured style. Governments’ task was to make sure that banks could withstand the losses that were bound to hit the banks. Not knowing which banks were most exposed, they offered a wide range of public support to all of them.

　　Today, the exposure of each bank to government debt is there for all to see, thanks to the last round of the European banking stress tests. But writedowns on these assets are far from clear (except in the case of Greek bonds); it depends entirely on the actions of policymakers. It is in their hands to avoid default.

　　A "prepare for the worst approach", i.e. a preventive recapitalisation of all banks as in 2008, therefore seems less convincing. For two reasons: firstly, it is rather bizarre that governments should use public money to recapitalise banks, forcing them to build a capital buffer against public default—an event that only becomes more likely if governments have to channel so much money into banks to protect them against it. Sounds rather absurd.

　　Secondly, a default of, say, Italy would be financial Armageddon. Bolstering capital buffers to hold out against such a shockwave would be like re-arranging the deckchairs on the Titanic. There is no reasonable amount of capital that could protect banks against it.

　　Simply more capital is not the solution. This is also evidenced by the woes of Dexia—which would pass even the toughest stress test (thanks to a high capital ratio) but is nonetheless a failed bank because its business model lacks a stable funding base. The lesson is clear: as long as investors fear further writedowns on government debt, a high capital ratio will not dispel such mistrust.